Hermosa Beach approves new pension structure for city employees

After nearly a year of negotiations, city workers and first responders in Hermosa Beach have agreed to a new labor deal.

The bargaining agreements formally approved by the City Council on Tuesday include a two-tier pension structure that will significantly reduce the city's contribution to the retirement funds of newly hired city employees.

By pushing ahead with the pension reforms, city officials said future savings would be "dramatic" and the move will help ensure that funding for vital services continues amid declining tax revenues.

"This is a very historic moment in our city," Mayor Pete Tucker said Tuesday after the bargaining agreements were officially ratified by the council. "No other South Bay city has done this."

Contract negotiations began in May. And with the newly approved agreements set to expire June 30, the city is already preparing to begin another round of bargaining talks, said City Manager Steve Burrell, who led negotiations for the city.

Municipal employees, including first responders, spent the last year working under the terms of their previous contracts.

"This will really help in the long run," Burrell said of the two-tiered retirement plan. "It took us a long time to negotiate and this is a compromise from where we started. I think it's a sign of the times."

Although Burrell said it was too soon to quantify the long-term savings from the newly negotiated pension plans, the reforms are expected to save the city nearly 40 cents for every $1 in payroll for each new police officer, 25 cents for every $1 in payroll for each new firefighter and 9 cents for every $1 in payroll for all other new city employees.

Under the two-tier retirement system, new hires to the city's Police and Fire departments will be eligible to retire at age 50 earning 2 percent of their salary multiplied by the number of years of service. The city will pay the employee's 9 percent contribution to their CalPERS retirement fund.

All current police and fire employees will retain their existing retirement plan, and are eligible to retire at age 50 and earn 3 percent of their salary multiplied by the number of years of service.

All other new city employees will fall under a "2 percent at 60" plan. The city will pay the 7 percent contribution to their retirement fund.

The city's contribution to the retirement funds of the seven employee groups can be renegotiated after 2012.

The labor deal included no cost-of-living raises for current employees, and there have been no salary increases since July 2008. Through negotiations, the city was able to allocate funding for two additional police officers.

But the new agreements did not not come without a fight. In August, unions representing the city's emergency responders sued the City Council for approving new labor agreements without completing negotiations with the employee bargaining groups, delaying the approval of the new contract until Tuesday. Leaders of the city's police and fire associations said a two-tiered pension system could hurt their ability to retain current employees and recruit qualified new hires.

Councilman Patrick "Kit" Bobko, a fierce proponent of spending cuts to public employee compensation plans, said the new deal represents only a fraction of future reductions needed to curb the city's growing pension costs.

"This is an important moment for the city's return to fiscal sanity and a sustainable path," said Bobko, a candidate for the 36th Congressional District seat recently vacated by Jane Harman.

"And yet even though we've done this now, this is just a tiny portion of what needs to be done going forward. I am still hugely disappointed at the outcome of this. I think we've taken a small bite, and the amount of work that still needs to be done is just overwhelming."

In Hermosa Beach, pension costs represent 14 percent of the general fund, or about $4 million of the city's $28 million annual budget. And retirement rates in the city are expected to climb 10 percent through 2011-12, costing the city about $400,000, according to the city's midyear budget report.

The town of 19,491 residents has about 200 employees, including police officers and firefighters.

The decision by the Hermosa Beach City Council comes as other municipalities across the state start to roll back escalating costs for public employee pension benefits, which threaten to impact funding of crucial city services.

The 10 largest public employee pension funds in California faced a combined shortfall of more than $240 billion in 2010, according to a report released in February by the Little Hoover Commission, an independent state watchdog agency.

"Even with the introduction of two-tiered pension plans, barring a miraculous market advance, few government entities - especially at the local level - will be able to absorb the blow without severe cuts to services," the report stated.

And as elected officials look across the bargaining table for possible concessions to curb spending, public sentiment across California continues to sour over generous benefit systems and pension plans paid to public employees.

An April 23 poll conducted by USC and the Los Angeles Times found that 70 percent of California voters support capping the pensions of current and future public employees to balance the state's budget.

In Manhattan Beach, 70 percent of the city's general fund - $39 million - goes to employee salary and benefits. That amount is expected to increase by at least a $1 million over the next three years.

Bargaining negotiations are currently under way and contracts for the city's three labor groups expire in July and August.

Because the negotiations are ongoing, City Manager David Carmany said he could not comment on the discussions. Carmany, the former top administrator in Seal Beach, recently negotiated a two-tier pension system with the Seal Beach Police Management and Police Officer associations.

And although Hermosa Beach council members on Tuesday warned the two-tiered pension plan opens the door for possible further compensation cuts, they commended the employee groups for making the concessions needed to keep the city's finances fiscally sound.

"We share the commitment to make the system more sustainable," Councilman Jeff Duclos said. "But I think if we're focusing on working-class people we're missing the picture."